11 March 2011

Chief of Ford may set record compensation for an auto CEO

Ford CEO Alan Mulally earned record setting compensation for reviving the challenged auto maker. His earnings will likely exceed the previous auto industry record set by Ford's former chief Alex Trotman in 1998, who made $73 million, a sum that also reflects the total his stock and options.

Mulally banked $33.4 million in after-tax gains on incentive stock awards granted as part of his 2008 pay package, which is only a fraction of what he has earned for his recovery efforts in Ford.

In the upcoming weeks, the Michigan-based auto maker will report Mulally's 2010 compensation. Industry analyst say there is a good chance his earnings will represent the largest compensation package the auto industry has ever seen.

A spokesperson for Ford declined to comment on the exact amount of the CEO's pay, but noted the company's stock rose 68% in 2010. He also added that Ford cut its debt by $14.5 billion and could now fund the company's $7-billion obligation to the health care trust for UAW retirees.

Equilar, a financial risk management firm that aggregates data on executive pay, claimed Mulally's total equity-based incentives are worth roughly $313 million based on Ford's $14.01 closing price on Monday. According to the firm's analysis, that estimate does not include bonus and other benefits.

The CEO's grand compensation is expected to raise the question of whether his pay is excessive or an appropriate reward?

During the past few weeks, shares of Ford's stock have dropped 24% from their highest level of $18.97 in January. The slip comes with concerns of extreme oil prices that will hinder overall profitability for the company.

Many make the claim that Mulally's $313 million payout is just and fair, however several others are not so quick to agree. The CEO is raking in a grand compensation for achieving what his peers in the domestic auto industry could not - driving a successful recovery without the intervention of the federal government.

Ford's drastic turnaround over the recent years will fuel other industries in automotive. One type of company that is already seeing improvements is a producer of hard tonneau cover products and accessories.

Yet the debate begins over whether his reward was right or too much. Advocates of the "pay-for-performance" system claim it is fair and well-deserved.

Ford does not plan to release any information regarding its top executives' pay for a few weeks, however the recent release that Mulally is to receive a $56.5-million stock award for delayed compensation granted in 2008 has spawned an uproar from the peanut gallery.

With respect to the $6.6-billion profit Ford earned last year, the CEO's compensation is not considered "excessive", said Van Conway, a specialist and advisor in corporate recovery. "When you look at the stock award, it's about 1% of profits," he said.

Opponents argue that such compensation packages like Mulally's are excessive amidst a national unemployment rate of 8.9%. In addition, some say his heafty pay package could also stir up issues with the UAW.

The CEO of Ford has "done a fabulous job, but when they negotiate with the union later in the year it's probably going to come back and bite them in the butt," said a key Ford shareholder.

Ford's recovery is destined to help a number of related sectors, ranging from auto transport companies to manufacturers of parts and components.

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